Steven Rhodes: Detroit schools’ finances better than expected

Dec. 30--Former bankruptcy judge Steven Rhodes leaves Detroit Public Schools Community District this week, about 10 months after being appointed by the governor to lead Michigan's largest school district during one of its most tumultuous periods.

When he started in March, the school system was still reeling from a string of teacher sick-outs that closed dozens of schools, sparked a lawsuit and put broken-down buildings in the spotlight.

The district was teetering on the edge of financial collapse. Lawmakers in Lansing were battling over what to do about it.

Finally, in June, the state Legislature passed a $617-million financial rescue package that created the new district to replace the old Detroit Public Schools. Rhodes was in charge of overseeing the complicated task of launching the new district.

The 45,000-student system still faces several challenges, including nearly 200 teacher vacancies and continued enrollment declines. But it is in notably better financial shape than a year ago.

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In his final weeks, Rhodes helped usher through deals that will bring the district additional money, including the sale of more than a dozen small, unused parcels of land for $3 million to Olympia Development, the developer of the new Little Caesars Arena in Detroit, future home to the Red Wings and Pistons.

The district has also agreed to sell its license for the radio station at the Detroit School of Arts to Detroit Public Television in a deal worth $9 million, pending regulatory approval. Detroit Public TV already pays the district for being able to operate the station, WRCJ-FM (90.9). The station is staying in the district. Students will have enhanced opportunities to learn about broadcasting as a result of the deal, officials said.

Additionally, planning is under way for a new skilled trades training program at Randolph Career and Technical Center.

Rhodes has passed the baton to a seven-member school board that will take office in January. It will be the first school board with any significant decision-making power since 2009, when a series of state-appointed emergency managers began controlling the district.

Rhodes is starting a new chapter professionally, joining the national mediation and arbitration firm JAMS, which is opening a Detroit office in early 2017.

In his final days as transition manager of the school district, Rhodes sat down with the Free Press to share his thoughts on his work with it and his hopes for its future. The following interview has been edited and condensed.

What was the most challenging thing about this job?

At the very highest level, the most challenging part of the job for me was the politics of it. Because, as a judge, I was never involved in politics. We had a fixed process. We engaged that process, the process concluded with a result, and we moved on. But here, there are political considerations to everything, and I was not prepared for that.

Why do you think that is?

It is because people are deeply concerned about the education of the children of this city, and rightly so. And so, everyone has a stake in the outcome of it.

What surprised you the most when you first started?

What surprised and disappointed me the most was the level of antagonism between Detroit on one side and the rest of the state and Lansing on the other side. Each side has predisposed views of the other side that are not based on fact, and that are not only unproductive, but counterproductive, and are not in the best interest of the children in the city. Both sides need to find very specific ways and methods to break through that, and they need to do it very soon.

Do you feel like that has that gotten better during your time here, or is it still the same?

After the legislation passed, I thought it had gotten better. And maybe it has remained better for certain people on both sides, but it's still an issue that needs to be addressed on a priority basis.

How do you see that happening? What is a way to address that?

It begins with our school board. The school board has to take very specific actions to reach out to decision- and policy-makers in Lansing to work with them on achieving Detroit's goals, to educate them on where DPSCD is, the progress it has made and how it's going to make progress in the future. And it has to do that outreach in a spirit of collaboration, cooperation, and reaching out for help, and with the assumption that people in Lansing want to help, not with the assumption that they are anti-Detroit.

How do you see the school board's relationship with the Detroit Financial Review Commission going forward?

I hope and expect that the board's relationship will simply continue the relationship that I and the staff here have already established, which is a cooperative, collaborative working relationship that recognizes our autonomy, (and) at the same time recognizes the value that the FRC brings to enhancing the credibility of DPSCD. ...

We have an example, a concrete example, of how the work of the FRC benefited DPSCD financially. It was the adviser that the FRC retained that helped us to identify a health insurance provider that was more comprehensive and less money.

What do you think about the new school board?

The school board has been working extremely hard and very long hours on educating themselves about the district and about how to be a good school board and good school board members. ... I've been impressed with their energy, their enthusiasm, (and) their commitment to hard and long work. I have hope for them.

Is the district financially where you hoped it would be at this point in your tenure?

It's better than where I hoped it would be. My goal was to have a balanced budget for this year, meaning revenues equaling expenditures. It turned out, through the hard work of the staff, and selling certain assets that we were not using and would never use, we actually will have a surplus this year, which we will use to create a much-needed fund balance. ... It's not as much of a fund balance as we need, but it's a really good start, and not one that I would have predicted or foreseen when we were putting our budget together last spring.

(The district has a $48.2-million projected fund balance, or reserve fund. Its roughly $650-million, fiscal year 2017 budget is balanced.)

Can you give me a quick rundown of some of the properties that were sold?

One of the deals is a sale of 14 vacant parcels to Olympia Development in the Cass Tech neighborhood that they have purchased for use in connection with the whole Olympia Development project.

The new stadium?

Yes. That's bringing in $3 million.

(Additionally), DPSCD owns a radio station, which is under a longstanding license or contract with Detroit Public Television to actually operate. We are transferring that license to them in exchange for $6 million, plus $3 million ... It's $6 million up front, a million and a half over 10 years -- $150,000 a year -- and $150,000 a year in technical services, with a joint venture partnership to enhance our academic capability with the radio station, so students will have an enhanced opportunity to use the radio station for educational purposes.

They have also, as part of this agreement, agreed to provide substantial assistance for us for fund-raising to replace outdated equipment. It's a win for them, and it's a win for us.

Anything else that you're proud of, or see as a major accomplishment?

(There's) a partnership with DTE and the city to really turn Randolph (Career and Technical Center) into a skilled trades training center as part of DPSCD. We are leasing the building to them. They will spend the money and make the improvements necessary to provide this training. And they'll do all the fund-raising necessary for that purpose. It will begin to address the mayor's and the governor's concerns about lack of employees or workers with skilled trades skills in the city.

The launching of the school district itself was the premier thing that we should all be proud about. You can't top launching a new school district as an accomplishment, and due thanks and regard and appreciation ought to be given to the Legislature for that. It was a hard vote for them. It was a necessary vote. But they had the courage to do it. The legislation wasn't ideal, but it got us to where we are, and we are on a path to success. I feel optimistic and confident about it.

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Beyond that, I think that the central office here is more efficient and more effective. I think morale in the district, from central office to the schools, is much more positive. I'm generally pleased with the collective bargaining agreements that we negotiated. I wish I could have done more. I hope the school board finds a way to do more -- the teachers and the other staff deserve more.

DPSCD needs to be more competitive in its compensation and benefits. We certainly do not like having 200 teacher vacancies. It saves us money, but we don't like it. It's not what we want.

How do you feel specifically about the district's finances going forward? You said recently that you don't want people to think DPSCD is flush with cash, because it's not.

I'm confident that we are in a position to maintain a balanced budget going forward. I think there are also opportunities to increase the fund balance, which is something we should be doing.

There are aspects of school finance, however, that do concern me. In order to achieve academic success, which is our goal, as it is every school district's, funding provided by the Legislature has to recognize two fundamental distinctions between Detroit and other school districts. No. 1 is that 60% of our students live in poverty, which means it's more challenging to educate them, and therefore more expensive to educate them. And you can attribute those expenses to enhanced reading services, enhanced wraparound services, enhanced truancy and attendance services.

A second factor (is) our special needs and special education children. We have a higher percentage than other districts. They are of course more expensive to educate, and in some cases, significantly more expensive to educate. And I don't want to give the impression that we don't want those students. We do, we absolutely do. They are as entitled to an education as any other child. But the reality is they are more expensive to educate. While some of that difference is made up by federal grants, it's not all of it. And so, that puts an extra strain on the budget.

School funding is based now, generally speaking, on the concept that equality is equity. We give the same amount for every child in the state. The problem is equality is not equity, or I should say is not always equity. In this case, it's not.

Is there anything else you'd like to add?

Alycia Meriweather has been an extraordinary interim superintendent. Hiring her was the single smartest thing I did. She brings an expertise and a commitment to her work that is a part of her very being. She's enthusiastic, and she's hopeful, and it's contagious. I hope she's the superintendent for a long time.

I'm proud of what we've accomplished. It was my honor to serve.

Contact Ann Zaniewski: 313-222-6594 or [email protected]. Follow her on Twitter: @AnnZaniewski.

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